Dollar Slides, Stocks Rally Ahead of US Inflation Data: Market Highlights

The US dollar experienced a decline, while stocks surged and Treasury yields retreated, reflecting expectations of a slowdown in US inflation and casting doubts on the need for additional interest rate hikes. Market focus turned to the imminent release of US consumer price data, which is anticipated to show a continued moderation in both core and headline inflation. The Stoxx Europe 600 index extended its gains for a fourth consecutive day, driven by strong performance in bank shares following successful stress tests conducted by the Bank of England. However, travel and leisure shares faced downward pressure, led by Air France-KLM and IAG, as Deutsche Bank downgraded their ratings. Futures for the S&P 500 and Nasdaq 100 also advanced after solid gains the previous day.

Bloomberg Economics suggests that the trend of easing inflation in the US could significantly impact policymakers in the coming months. Federal Reserve officials have emphasized the necessity of higher interest rates to ensure that price growth aligns with the central bank's target of 2%. With a 25-basis-point rate increase anticipated on July 26 after the pause in June, the future course of monetary policy remains uncertain.

Joachim Klement, Head of Strategy, Accounting, and Sustainability at Liberum Capital, commented on the decoupling of US and European equity markets from the inflation narrative in recent months. He emphasized the importance of the June release of US inflation data, cautioning that an unexpected uptick in core inflation could catch investors off guard and result in market softness.

In Asia, stock performance was mixed, with Japan experiencing a decline, while Australia and India saw gains. Hong Kong stocks rose following robust credit expansion data from China, and Chinese tech firms recorded their third consecutive day of gains, buoyed by positive remarks from the country's top economic planner and news of meetings between officials and key companies, instilling optimism regarding policy support for the sector.

In contrast, China's domestic benchmark CSI 300 index dipped 0.4%, reflecting the desire of local investors for stronger stimulus measures to revive a struggling economy.

The yen attracted attention as it broke the key 140 level, partly due to speculation that the Bank of Japan may make policy adjustments later this month.

Elsewhere, the offshore yuan continued its upward trajectory against the US dollar, supported by China's central bank through a stronger-than-expected daily reference exchange rate.

Meanwhile, the New Zealand dollar initially pared gains but strengthened later after the Reserve Bank of New Zealand's decision to keep interest rates unchanged for the first time in nearly two years. The country's sovereign bond yields declined as a result.

In the commodities market, oil prices stabilized after indications of a drop in Russian crude production, suggesting a potential end to the oversupply situation. Gold remained steady amid market uncertainties.

Key events to watch this week include the Bank of Canada's rate decision, speeches by Bank of England Governor Andrew Bailey, the US Consumer Price Index (CPI) release, the Federal Reserve's Beige Book publication, and earnings reports from US banks.

Major Market Moves:

Stocks:

• Stoxx Europe 600 index: +0.4%

• S&P 500 futures: +0.1%

• Nasdaq 100 futures: +0.2%

• Dow Jones Industrial Average futures: Unchanged

• MSCI Asia Pacific Index: +0.5%

• MSCI Emerging Markets Index: +0.7%

Currencies:

• Bloomberg Dollar Spot Index: -0.2%

• Euro: +0.2% to $1.1026

• Japanese Yen: +0.5% to 139.69 per dollar

• Offshore Yuan: +0.2% to 7.1957 per dollar

• British Pound: Unchanged at $1.2941

Cryptocurrencies:

• Bitcoin: +0.8% to $30,819.28

• Ether: +1.1% to $1,893.86

Bonds:

• 10-year Treasury yield: -2 basis points to 3.95%

• Germany's 10-year yield: +1 basis point to 2.66%

• UK's 10-year yield: -3 basis points to 4.63%

Commodities:

• Brent Crude: Unchanged

• Spot Gold: +0.1% to $1,934.39 per ounce

Noteworthy Events This Week:

• Canada rate decision

• Speech by Bank of England Governor Andrew Bailey

• US Consumer Price Index (CPI) release

• Federal Reserve's Beige Book publication

• Speeches by Neel Kashkari, Loretta Mester, and Raphael Bostic (Federal Reserve officials)

• China trade data

• Eurozone industrial production data

• US initial jobless claims and Producer Price Index (PPI) release

• US University of Michigan consumer sentiment data

• Earnings reports from US banks

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